UK: HMRC 2013-14 Annual Report and accounts published

HMRC has now published its Annual Report together with an update on how it resolves tax disputes and how this was managed in the 2013-14 period. The annual report covers HMRC’s progress in operating the PAYE service, its implementation of Real Time Information (RTI) and performance in tax collection and reducing error and fraud in personal tax credits. The report also describes how HMRC deploys its compliance resources and measures and reports the impact of its compliance work. In addition, the National Audit Office (NAO) has issued a press release in relation to HMRC’s 2013-14 accounts.

The NAO press release notes that HMRC has been "broadly successful” in meeting its objective of securing additional tax revenue by investing in compliance projects, as measured by its estimates of compliance yield. However an error of as much as £1.9 billion in HMRC’s baseline calculation led it to report the trend in its performance in a way that inadvertently exaggerated the improvement since 2010-11. The National Audit Office welcomed HMRC’s decision to invite it to provide independent assurance on the data it publishes on compliance revenue in future, and "the greater clarity and transparency about its performance that HMRC has provided in this year’s annual report".

We have reviewed the Annual Report, and summarised without prejudice some of the points of general interest below.

Performance in 2013-14

HMRC received total tax revenue of £506 billion, £30 billion (or 6.3%) more than in 2012-13. The taxes that contributed most of this increase are income tax and national insurance which increased by £16.2 billion (6.4%), VAT by £7.2 billion (7.1%) and stamp taxes which have significantly increased by £3.4 billion (35.8%). The value of debt either written off or ‘remitted’ (not pursued by HMRC for reasons such as hardship or value for money) during the year was £5.1 billion.

Compliance yield

HMRC reported compliance yield (the additional revenue it generates through its compliance activities) of £23.9 billion in 2013-14 – its highest yield to date. However, in response to the NAO’s review, HMRC found that, when it agreed performance targets with the Treasury for the spending review period, it had made errors that led it to set its baseline £1.9 billion too low, as mentioned above. This made the targets easier to achieve and led HMRC to report that it had exceeded its performance targets by £1.9 billion in 2011-12 and £2 billion in 2012-13 when in fact it had achieved almost exactly the level of performance anticipated.

It also led to HMRC inadvertently overstating the extent of the improvement in its performance when comparing the years up to 2010-11 with the compliance yield it has generated since.

Progress in performance of tax systems since last year

HMRC continues to modernize PAYE by rolling out its RTI system for all employers. ‘Tax debt’ has increased to £13.3 billion (from £12.2 billion last year); but HMRC collected £39.6 billion in 2013-14 and focused on clearing debt older than one year, resulting in the balance of this debt falling to £3.7 billion (£4.2 billion last year).

The UK-Swiss Tax Agreement, which came into force in January 2013, had brought in £1 billion by 31 March 2014, compared with the £5 billion HMRC had originally forecast it would collect by March 2016, but in line with its updated forecast of £1.7 billion.

Tax credits error and fraud

The Comptroller & Auditor General has qualified his audit opinion on HMRC’s 2013-14 resource accounts because of material levels of error and fraud in the payments of personal tax credits. This is the third consecutive year he has qualified the accounts on these grounds.

Tax credits debts rose to £5.5 billion at 31 March 2014 (up £0.7 billion from a year earlier). HMRC has undertaken a detailed analysis of its success in pursuing debts and believes that only 34% of the balance is likely to be recovered (31% at 31 March 2013). HMRC is making increased use of private sector debt collection agencies to recover tax credits debt and is on target to achieve a return of £90 million, though recovery rates to date of 18% are well below the 30% it originally forecast.

An updated organisational chart of senior HMRC personnel has also now been published in addition to HMRC Fast Facts, which sets out HMRC's work on tackling avoidance, evasion and fraud.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.